Currently, there are three major obstacles to Bangladesh’s growth. First of all, high inflation is hampering growth. The second is the dollar crisis. And the third is the vulnerability of the financial sector.
Trends in key macroeconomic indicators such as imports, exports, private sector credit, and investment indicate that next year’s gross domestic product (GDP) growth rate will be slightly lower compared to 2022.
However, it cannot be said that there was no economic growth during this period. Positive growth has been observed in the power generation and agriculture sectors, especially in crop production. However, overall growth was not strong.
The economy is currently experiencing slightly lower GDP growth compared to early 2023. Both demand-side and supply-side factors are contributing to the slowdown in growth.
Analysis of the demand side reveals a strong historical and empirical correlation between foreign trade and GDP growth. The growth of our country’s export earnings has slowed, which means that external demand is slower than last year.
In terms of investment, we didn’t see much progress last year either. On the other hand, investment demand is sluggish due to various uncertainties. On the other hand, the dollar crisis and import restrictions have made it impossible to meet existing demand.
Commodity prices act as an important determinant of aggregate demand. Private demand decreased due to the negative effects of high inflation. Continuing high inflation, especially soaring food prices, has reduced the purchasing power of the poor and those on fixed incomes.
On the supply side, LC openings and LC settlement data indicate that there were bottlenecks in imports of raw materials and intermediate inputs throughout the year. As a result, production capacity is underutilized.
In short, inflation is pushing down demand. Meanwhile, the dollar crisis disrupted supply.
Going forward, the global economy is expected to experience a slight slowdown in growth. Apart from the geopolitical situation, the global economy has improved slightly and inflation has also decreased slightly.
If the tide of war remains unchanged, the US dollar price is likely to remain stable. Global interest rates may also fall. And if it doesn’t decrease, it won’t increase.
Commodity prices are also expected to remain stable unless supplies are disrupted by war-related sea route closures. The global outlook appears to be more optimistic compared to the same period last year.
Apart from the global situation, Bangladesh’s GDP growth depends on the successful restoration of macroeconomic stability.
Currently, there are three major obstacles to Bangladesh’s growth. First of all, high inflation is hampering growth. The second is the dollar crisis. And third, the vulnerability of the financial sector.
If vulnerabilities do not increase, the dollar crisis is contained, and inflation is contained, next year will be a better year in terms of growth than the previous year. This assumes everything else is fine. But the reality is that a lot of things may remain the same next year.
Trade barriers such as increased tariffs and sanctions, due to political reasons, labor rights, human rights, and other issues, can hinder growth.
Regardless of the geopolitical situation, exports can be sustained if there are no trade barriers. If tariffs are increased or non-tariff barriers are erected, the export sector and other related sectors will suffer.
In addition to these risks, there are other risks such as increases in the prices of oil, gas, and electricity. If interest rates rise further, growth will also be at risk.
Apart from this, there are continuing challenges such as risks to political stability, declining institutional capacity and reluctance to reform.
The author is a former chief economist at the World Bank’s Dhaka office.